Amazon.com Inc. (NASDAQ:AMZN) is dropping its membership price for low-income shoppers, going after a Wal-Mart Stores Inc. (NYSE:WMT) stronghold.
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The online retailer giant said Tuesday that it will offer a nearly 20% segment of the U.S. population -- people who obtain government assistance with cards typically used for food stamps -- a $5.99 monthly Prime membership, less than the $10.99 a month or $99 annual plan for other consumers. The membership buys access to unlimited two-day shipping, video and music content, photo storage and other perks.
The new Prime offering takes direct aim at Wal-Mart, which counts on shoppers who receive government assistance for a large percentage of sales. Wal-Mart generated about $13 billion in sales last year from shoppers using the Supplemental Nutrition Assistance Program, or SNAP, accounting for around 18% of the money spent through the program nationwide. Those customers also spend additional income while in Wal-Mart stores.
Amazon will require cards typically used for food stamps as an initial measure to determine participant eligibility, although they can't yet be widely used for shopping online. The retailer plans to add additional ways to qualify.
Low-income shoppers are "a big opportunity" and are already buying online, said Laura Kennedy, director, retail insights at consultancy Kantar Retail. But some lower-income consumers still face hurdles because they more often lack typical bank resources like accounts or credit cards.
An Amazon spokeswoman said the company was looking at underserved audiences when it came up with the concept, adding that $99 might be a barrier to entry for some consumers in a temporary state of need. Amazon will require eligible participants to requalify every year for up to four years.
Wal-Mart has been working to keep those customers even as more shop online. It acquired low-cost Jet.com for $3.3 billion last year and has been revamping its online strategy, scrapping a $50 charge for a two-day, no-cost shipping membership program in favor of offering free shipping on orders over $35. (Amazon's free-shipping threshold for non-Prime customers is currently for orders over $25.) Wal-Mart executives hoped it would draw in more value-oriented and non-Prime customers by removing membership fees.
At the same time, Amazon has been working to grow its Prime membership program, adding perks and expanding it to more than a dozen countries internationally. Analysts estimate that its more-than-60-million members spend significantly more than other shoppers.
Still, 47% of U.S. primary household shoppers say they never or rarely shop on Amazon, according to data from Kantar Retail. About 30% of the approximately 44 million SNAP recipients have access to Prime via a subscription, free trial or family member, according to Kantar.
Amazon also introduced "Amazon Cash" earlier this year, which lets customers add cash to their account balance at more than 10,000 physical locations around the country.
Food-stamp grocery purchases are set for an overhaul with a new test allowing online food stamp payment. Amazon and Wal-Mart are among 10 in a two-year pilot by the U.S. Department of Agriculture planned to start next year.
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(END) Dow Jones Newswires
June 06, 2017 03:14 ET (07:14 GMT)